The
following article was written for World
Trade magazine by BarterNews editor Bob Meyer.

In
late August the world's economic leaders met for an annual policy
conference in Jackson Hole, Wyoming. Alan Greenspan was there, as
were the heads of the central banks of Britain, Japan, and 26 other
countries.

One
of the attendees, Mervyn King, Deputy Governor of the Bank of England,
ruminated on the impact of electronic commerce and the future of money.
His conclusion, quoted below, will be startling to some, yet obvious
to others--particularly those engaged in the commercial barter industry,
which I've been covering for 20 years.

"There
is no reason products and services could not be swapped directly by
consumers and producers through a system of direct exchange--essentially
a massive barter economy.

"All
it requires is some commonly used unit of account (trade dollars)
and adequate computing power to make sure all transactions could be
settled immediately.

"People
would pay each other electronically, without the payment being routed
through anything that we would currently recognize as a bank. Central
banks in their present form would no longer exist--nor would money."

International
business growth coupled with today's blistering technological change,
means it's only a question of time before electronic commerce impacts
the role of money, inasmuch as companies of every size look for easier,
more efficient ways to facilitate their business efforts.

Mr.
King's suggestion of electronic barter payments would make international
business considerably easier for many, as it would negate today's
struggle to acquire sufficient U.S. currency--which is still the unit
of exchange in the majority of international transactions. Barter
is used because foreign trading partners don't have, or don't want
to use, their limited hard currency to buy products and services from
the sellers.

Unfortunately,
today's international mode of bilateral one-to-one barter is very
tedious and restrictive. The foreign entity uses the U.S. company
to, in effect, become their defacto marketing arm. Additionally, growing
nationalism often requires an "offset" component be added to the transaction.
The buyer's country dictating, "If we give you this (sale) business
opportunity, you will be expected (or required) to bring back business
to our country--a percentage of the deal's total value." This could
be in the form of pushing tourism toward them, building a factory
in their country, or agreeing to make selected purchases for other
products and services from the country.

Various
countertrade mechanism's will evolve as the magnitude of world trade
expands. (The World Trade Organization, the U.S. Dept. of Commerce,
and The Economist magazine say it accounts for 8% to 10% of the $5
trillion business now done between the countries of the world.) One
of the changes will be the introduction of a direct exchange utilizing
a unit of account as envisioned by Mr. King. The use of a "trade dollar"
as a form of payment offers multi-lateral trading possibilities. Interestingly,
it's an alternative already being used by hundreds of thousands of
small business owners. And its use is growing, percentage-wise, faster
than countertrade.

Computer
+ Trade Dollars = Multi-Lateral Trading

Whereas
countertrade has always been used by Corporate America, this new form
of barter evolved from the small business sector. Known as a trade
exchange, it's a proven, effective way to conduct business without
the use of cash. Now used worldwide by some 600,000 companies aggregately,
it has recently taken on an international bent by increasing its availability
from three countries ten years ago to a present 23 countries. This
method of trading is more sophisticated and versatile than today's
countertrade methods, because it's multi-lateral rather than countertrade's
bilateralism. In short, why would one take canned hams as a countertrade
payment, which entails remarketing, if one can instead acquire a unit
of account (a trade dollar) which can be spent in a variety of ways
for needed products and services? A trade dollar is easier, faster,
and less expensive to use.

How
A Trade Exchange Works

In
1960, "Mac" McConnell, then a 38-year-old unsatisfied president and
principal stockholder of a Los Angeles thrift and loan, devised and
developed a debit and credit system for barter which enabled traders
to circumvent the cumbersome one-on-one trading.

McConnell, who studied accounting at Washington University and later
earned a master's degree in econometrics--the statistical application
of economics--at the University of Chicago, not only developed a professional
accounting system for barter, but more importantly created a credit
system that gave it liquidity.

The
company he started, Business Exchange (known in the industry as BX),
is one of the largest exchanges in the U.S. with 20,000 members. Shortly
after his successful endeavor others followed, all emulating the McConnell
model. There are now over 700 trade exchanges worldwide, with 450
of them located in the United States.

A
trade exchange is a privately-owned company that provides its members
a conduit to other like-minded members, who sell and buy from each
other using a trade dollar as a medium of exchange (equivalent to
one cash dollar for use of accounting purposes).

Each
time a member makes a trade purchase, the exchange debits the buyer's
account and credits the seller's account with trade dollars. Sales
are normally made at the seller's normal pricing structure, whether
retailer, wholesaler or liquidator. A cash commission of typically
10% is paid to the exchange for its services.

Under
the Tax Equity & Fiscal Responsibility Act of 1982 (TEFRA) trade exchanges
are classified as third-party record-keepers, having the same fiduciary
obligations as bankers and stock (securities) brokers. For tax purposes
trade dollars are taxable in the year they are earned, and reported
as such on 1099-B forms to the IRS. All members of an exchange get
a 1099-B showing their barter sales for the calendar year.

Industry
Associations Established

In
1979, the first of two national trade associations was formed. Known
as the International Reciprocal Trade Association (IRTA), its goal
in those early days was to bring together trade exchanges to foster
the common interests of a fledgling commercial barter industry.

Today
IRTA members (barter companies) come from as far away as Russia, Iceland,
Germany, Chile, Turkey, and Australia. A second association, the Cleveland-based
National Association of Trade Exchanges (NATE) came into existence
in 1984 and focuses on a domestic agenda for its membership.

Universal
Currency Established Promoting Global Barter Business

It
wasn't long after the first IRTA organizational meeting in California
twenty years ago that trade exchange owners, newly introduced to one
another, began trading among themselves so they could expand the goods
and services offered to their respective networks--thereby helping
their clients.

They
did so on a reciprocal basis, owner-to-owner, inasmuch as their trade
dollar currencies were inconvertible. However, given the inherent
risks in providing extensive credit to one another, the potential
for trade between trade exchanges was limited until a way of lessening
the liability was created.

That
occurred in 1996 when a proposal was made by IRTA's chief executive
to establish and operate a Universal Currency Clearinghouse (UC).
Instead of trading hard product between each other, a currency just
for this purpose would be established. IRTA would administer and control
the currency.

The
idea was overwhelmingly approved by the Board of Directors, and the
opportunity was immediately at hand to develop a worldwide system
which would enable trade exchange owners, regardless of their size
or location, to easily trade with one another by using this special
currency. Transactions are processed by an automated 24-hour authorization
center or via e-mail, with UC monthly trading volume currently at
$1 million.

Dot.com
Companies Enter Barter Arena

Within
the last year barter on the internet has appeared and promises to
take the industry to the next level, as the bartering opportunitiess
for various products and services become increasingly global using
this new medium.

Ubarter.com
in Seattle and Melbourne-based BarterExpress.com are expanding rapidly.
On the horizon are two other venture-capital backed internet barter
companies, which are in the pre-launch stage. Their backing reportedly
comes from Kleiner Perkins Caufield & Byers, and Sanford Robertson,
as well as Vector Capital.

Recently
a new market-making service, TradeBanc.com, has been introduced by
one of the industry's successful practitioners. Its computerized technology
will enable members of trade exchanges to trade directly, online,
with members of other trade exchanges--anywhere in the world--as long
as their barter company is a TradeBanc affiliate.

Every
barter company will continue to have their own front-end, operating
as they do now. That's because TradeBanc (being the market-maker)
is the facilitator or clearinghouse, rather than a third-party record
keeper.

The
new technology will be a valuable adjunct to the commercial barter
industry. It promises to catapult international trading efforts forward
since the aggregation of all goods and services from all the participating
TradeBanc affiliates will be housed in a single database. The tranactions
will be cleared by the local exchanges, and settlement will be made
using IRTA's Universal Currency.

How
Your Company Can Benefit

Trade
exchanges and corporate barter companies facilitate the movement of
$10 billion in goods and services annually. Now done almost entirely
in their respective domestic markets, as the Universal Currency is
still in its infancy.

That
is changing, however, as members of trade exchanges are finding that
trips abroad can be handled through their trade exchanges. I personally
know scores of business owners who have taken extensive business trips
to Europe and Asia, covering the expenses with trade dollars. Additionally,
media around the world is increasingly available for companies who
have international needs.

For
further information on barter companies that are members of IRTA and
use the Universal Currency, contact IRTA at (312) 461-0236, or their
web site:www.irta.com.

Conclusion
Mr. King's vision of the future implementation of direct exchanging--becoming
an immense barter economy--is plausible, because all the ingredients
necessary for attainment are now at hand with today's enormous and
ever-growing computer power. The use of trade dollars, as a viable
currency or a medium-of-exchange, is four decades old and utilized
in millions of transactions.

The
ubiquitousness of the internet and its infrastructure should/could
enable the development of a massive online electronic barter economy,
to complement and expand the off-line barter offices now dotted around
the globe. Which leaves only one final part of the puzzle to be found--capitalization.

Basically,
this will require that one or more major corporations grasp in totality
the enormous magnitude of creating and ultimately implementing a private,
worldwide barter currency.

The
move in this direction is, admittedly, very fragmented at this time.
But the commercial barter industry's evolution is on-going and will
continue. Dot.com companies entering the barter arena will speed the
movement forward. The question at this time is: How big will the electronic
barter economy ultimately become?

Given
the projections for U.S. business-to-business e-commerce (defined
as orders placed between businesses via the internet) which is expected
to explode over the next few years reaching $1.3 trillion in 2003,
it is not that far a reach to assume that with financial might and
manpower, the creation of an efficient, effective mechanism for commerce
could be constructed which would allow for the payment and acquisition
of goods and services by utilizing one's own products and services.

About
the author: Bob Meyer, a former major league baseball player, is the
founder and publisher of BarterNews magazine, established in 1979.
In 1997 he was the third inductee into the IRTA "Barter Hall of Fame."
He can be reached at www.barternews.com.